01—Abstract
Summary
Summary of the 10-K filed February 6, 2019. Cited figures are marked; the original filing is the authoritative source.
Biogen's FY2018 10-K shows a year of strong top-line and earnings growth, driven by SPINRAZA launch momentum, biosimilar growth, and rising anti-CD20 program revenues, offset by a heavy R&D investment load and continued MS franchise erosion.
Total revenues rose 9.6% to $13.45 billiona, product revenues rose 5.1% to $10.89 billion, and revenues from anti-CD20 programs rose 27.0% to $1.98 billion. Diluted EPS was $21.58, up 81% from $11.92 in 2017, although the comparison is distorted by the $1.17 billion Transition Toll Tax provision booked in 2017; the 2018 effective tax rate fell to 24.2% from 47.9%. Beneath the headline numbers, the MS franchise is under pressure: MS product revenues fell 4.3%, with Interferon (AVONEX/PLEGRIDY) down 10.7% and TYSABRI U.S. volumes down 9%.
Management expects continued declines in Interferon and TYSABRI demand in 2019, citing competition from OCREVUS and other MS therapies. SPINRAZA ($1.72 billionb, up 95%) and biosimilars ($545 million, up 44%) are the main growth engines, though management expects SPINRAZA growth to moderate in 2019. Operating cash flow was strong at $6.19 billion, supporting $4.4 billion in share repurchases, but cash and marketable securities fell to $4.9 billion from $6.7 billion.
Notable pipeline risks include the Phase 2 ACTION failure, the vixotrigine impairments, and the Phase 2b dapirolizumab miss, and a potential 2019 U.S. biosimilar entry for RITUXAN. The 2018 results also include significant one-time charges, most notably the $486 millionc R&D charge from the Ionis collaboration, which is captured in reported results and should be considered when assessing underlying profitability.
02—Key points
Key Highlights
- Total revenues grew 9.6% to $13.45B, while product revenues rose 5.1% to $10.89B; SPINRAZA reached $1.72B (up 95%) and biosimilars reached $545M (up 44%).
- MS product revenues declined 4.3% to $8.6B, with Interferon down 10.7% and U.S. TYSABRI volumes down 9%; management expects further declines in 2019 due to OCREVUS and other competition.
- Anti-CD20 program revenues rose 27% to $1.98B, driven by OCREVUS royalties ($478M vs. $159M) and higher RITUXAN/GAZYVA U.S. co-promotion profits.
- Diluted EPS of $21.58 (up 81%) is inflated relative to underlying trends by the 2017 Transition Toll Tax charge; the 2018 effective tax rate was 24.2% vs. 47.9% in 2017.
- 2018 R&D of $2.6B (up 15%) included a $486M charge for the Ionis agreement and $35M for BIIB067; the company also took $189M of vixotrigine IPR&D impairments and $177M of TECFIDERA U.S. intangible impairment.
- Capital return was significant: $4.4B in share repurchases in 2018 under the 2016 and 2018 programs, with $2.1B remaining under the $3.5B 2018 authorization at year-end, while cash and marketable securities declined to $4.9B.
- Key risks include the MS franchise erosion, a potential 2019 U.S. RITUXAN biosimilar entry, the ~$5B of potential contingent milestone payments, the 2019 Brexit exposure (about 2% of product revenues from the U.K.), and an ongoing Hatch-Waxman TECFIDERA litigation program.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Biogen Inc. kept $0.33.
- Revenue$13.45B100.0%
- Cost of revenue−$1.82B13.5%
- Gross profit$11.64B86.5%
- Operating costs−$5.75B42.7%
- Operating income$5.89B43.8%
- Interest, other & tax−$1.46B10.8%
- Net income$4.43B32.9%
Where FY2018 revenue went
$13.45B- Net income: $4.43B, 33% of revenue
- Other operating costs: $3.64B, 27% of revenue
- SG&A: $2.11B, 16% of revenue
- Cost of revenue: $1.82B, 14% of revenue
- Interest, other & tax: $1.46B, 11% of revenue
Kept 33% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 6, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $13.45B$12.27B | +9.6% |
| Cost of Revenue | $1.82B$1.63B | +11.4% |
| Gross Profit | $11.64B$10.64B | +9.3% |
| SG&A Expenses | $2.11B$1.93B | +8.9% |
| Operating Expenses | $7.56B$6.93B | +9.2% |
| Operating Income | $5.89B$5.35B | +10.2% |
| Interest Expense | $200.60M$250.80M | −20.0% |
| Net Income | $4.43B$2.54B | +74.5% |
| EPS (Basic) | $21.63$11.94 | +81.2% |
| EPS (Diluted) | $21.58$11.92 | +81.0% |
| Shares Outstanding (Basic) | 204.90M212.60M | −3.6% |
| Shares Outstanding (Diluted) | 205.30M213.00M | −3.6% |
05—Questions
Frequently Asked Questions
How did Biogen's core MS franchise perform in 2018, and what is the outlook?
MS product revenues fell 4.3% to $8.6B. Interferon revenues dropped 10.7% on lower unit volumes as patients switched to other therapies, and U.S. TYSABRI volumes declined 9%. TECFIDERA was roughly flat at $4.27B, with U.S. volumes down 5% offset by ex-U.S. growth of 16%. Management expects Interferon and TYSABRI declines to continue in 2019 due to competition from OCREVUS and other MS therapies, and expects only a stabilization of TECFIDERA U.S. volumes.
What is driving growth beyond the MS franchise?
SPINRAZA is the largest growth driver, with 2018 revenues of $1.72B (up 95%), supported by a 32% increase in U.S. unit volume and continued international launches. Biosimilar revenues (BENEPALI, FLIXABI, and the newly launched IMRALDI) rose 44% to $545M. Anti-CD20 program revenues rose 27% on OCREVUS royalties and higher U.S. RITUXAN and GAZYVA profit shares. Management expects SPINRAZA growth to moderate in 2019 and expects strong biosimilar growth to continue.
Why did reported EPS jump so much, and what should investors adjust for?
Diluted EPS rose to $21.58 from $11.92, but 2017 included a $1.17B provisional tax charge tied to the 2017 Tax Act, including $989.6M of Transition Toll Tax, which depressed that year's result. The 2018 effective tax rate of 24.2% also benefited from the lower federal statutory rate. Investors should note that 2018 included several one-time charges, such as the $486M Ionis-related R&D expense, $189M of vixotrigine impairments, and $177M of TECFIDERA U.S. intangible impairment, as well as a $135.8M GILTI deferred tax expense. Share count reduction from buybacks (about 14.8M shares repurchased in 2018) also contributed to EPS growth.
What are the most important pipeline and litigation risks disclosed?
Key pipeline setbacks include the Phase 2 ACTION failure for natalizumab in acute ischemic stroke, the Phase 2b PLSR failure for vixotrigine (with the TGN Phase 3 program now being planned), and the dapirolizumab pegol Phase 2b miss on its primary endpoint in lupus. Key pending items include aducanumab's Phase 3 studies (ENGAGE and EMERGE), BIIB098/VUMERITY's NDA review, and the Phase 2 PASSPORT study of BIIB092 in PSP. On legal matters, the company faces Hatch-Waxman litigation over TECFIDERA patents, an IPR petition against its '514 patent (instituted February 2019), IMRALDI patent challenges in Europe, qui tam suits, and securities litigation. The company also disclosed an approximately $70M Brazilian tax assessment that it disputes.
How strong is Biogen's cash generation and balance sheet, and how is capital being deployed?
Operating cash flow was $6.19B in 2018, up 36%. Capital deployment included $4.4B in share repurchases, $1.5B in Fumapharm contingent payments, $676.6M for the Samsung Bioepis stake increase to ~49.9%, $462.9M for Ionis common stock, and $770.6M in capex, mostly for the Solothurn, Switzerland biologics facility. Cash and marketable securities fell to $4.9B from $6.7B. Total borrowings were $5.94B against a $1.0B undrawn revolver, and the company had no dividend history. Roughly 51% of year-end cash was held in the U.S. after the 2018 repatriation of about $3.5B. The $697M remaining Transition Toll Tax liability will be paid over eight years, with no interest.
06—Continue